In a Feb. 18 research note, Pavel Molchanov, a Raymond James analyst, purported that Advanced Energy Industries Inc.'s (AEIS:NASDAQ; AEIS:BSX) acquisition of Artesyn "greatly diversified the revenue mix," and the power solutions company is "on course for a 2020 free cash flow yield of 5%."
Molchanov added that "above and beyond the earnings accretion and the strategic benefit of diversification, creating a top line picture that is less choppy from quarter to quarter is particularly valuable."
Accordingly, Raymond James increased its target price on Advanced Energy to $85 per share from $78. In comparison, the stock is trading now at around $62.79 per share.
The analyst reviewed the energy firm's financial numbers of Q4/19, the first full quarter that includes the Artesyn acquisition, Advanced Energy's largest. Earnings per share (EPS) was $0.87, above the high end of the corporation's $0.56–0.80 guidance. It also exceeded Raymond James' $0.78 estimate and consensus' forecast of $0.69.
Revenue of $338 million, up 119% year over year and 93% quarter over quarter (QOQ), followed the same trend. It, too, surpassed guidance of $295–325 million. "While the vast majority of the revenue growth came from Artesyn, the legacy business also showed strength, exemplified by semi cap's 30% QOQ jump, nicely accelerating from Q3/19's 6% rebound," Molchanov commented.
With cost synergies from the Artesyn acquisition starting to come into play, Advanced Energy's Q4/19 sales, general and administrative expense and research and development expense were less than expected.
Molchanov noted that a "semi cap uplift is boosting Q1/20 guidance as well, despite the coronavirus uncertainty." The company's projected range for Q1/20 EPS is $0.40–1.00. This is broader than usual due to the coronavirus "disproportionately affecting the legacy Artesyn products"; there is an Artesyn facility in China.
Thus, Raymond James increased its Q1/20 EPS estimate to $0.79 from $0.70 and now forecasts the full-year 2020 EPS at 56%. The financial services firm expects EPS "growth of 68% in topline, reflecting the addition of Artesyn for a full 12 months as well as continuation of recovery in semi cap and resumption of growth in industrial," Molchanov explained.
As for free cash flow, Raymond James projects the $49 million in 2019 to triple to $156 million this year and increase even further in 2021 to $178 million. As such, cash flow yields would be 5% in 2020 and 6% in 2021.
Raymond James has an Outperform rating on Advanced Energy Industries.
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Disclosures from Raymond James, Advanced Energy Industries Inc., February 18, 2020
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Pavel Molchanov, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
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Raymond James & Associates, Inc. makes a market in the shares of Advanced Energy Industries, Inc.
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